Southeast Asia, with a GDP of USD$ 3 trillion in year 2021, is considered as one of the world’s fastest growing markets, especially in Malaysia and Singapore.
Singapore was ranked as the 2nd easiest and friendliest place to do business by The World Bank in year 2020 with a score of 86.2%. The population is estimated to be around 5,947,961 in 2022 with a GNI Per Capita at USD$ 64,010 in 2021. This country is considered to be a high-income country.
As for Malaysia, the country was ranked as the 12th easiest and friendliest place to do business by The World Bank in year 2020 with a score of 81.5%. The population is estimated to be around 33,245,918 with a GNI Per Capita at USD$ 10,930. This country is however considered as an upper middle-income country.
Despite the difference in ranks, these countries are considered as the two most attractive foreign investment destinations in Southeast Asia. So, how are these two countries beneficial towards your business goals and which you should decide to incorporate in?
According to Forbes Best Countries for Business published in year 2020, Singapore was ranked at number 8 globally. This is because of the country’s prominent performance in trade freedom, update with technology as well as lighter tax burden.
On the other hand, Malaysia has remained at 35th place globally, given the country’s strength in investor protection, monetary freedom as well as innovation.
Table below shows the rank of the top three priority an entrepreneur looks for when it comes to foreign investment.
In terms of trade freedom, the Singapore domestic market has remained open for as long as it exists as almost 95% of the goods entered Singapore are duty-free. The efficiency of Singapore border process coupled with the quality of transport services and the country’s overall socio-politic environment has boost the Singapore rank as top 1 in World Economic Forum’s Global Enabling Trade Report while Malaysia was ranked at 37.
While Singapore may have the upper hand in its business environment, but Malaysia has the advantage when it comes to the workforce the country offers.
Malaysia has a larger population with at least 6.2% more compared to Singapore. Even though Singapore workforce focuses more on working the future economy that is different and leaner, Malaysia offers those with higher education background as almost 30% of the Malaysia’s workforce has attained a tertiary education background.
It is common knowledge that in terms of language, both Malaysia and Singapore mostly use English as the medium of communication. Both countries are also known to have bilingual speaker who are able to converse in Malay, Chinese as well as Tamil.
Hence, it is still quite easy for the foreign investors to adapt with the situation in both countries given they mostly use English as the business language.
Malaysia and Singapore have maintained its corporate tax rate at 17% for Small and Medium Enterprises (SMEs). However, Malaysia is bound to charge at a flat rate of 24% against foreign registered Company in Malaysia. The taxation procedures in Malaysia are double tier as there are taxes to be paid to the Inland Revenue Board and other taxes paid to regional tax authorities.
The World Economic Forum has ranked both Singapore and Malaysia highly for the burden of government regulation, transparency of government policy, and public trust in politicians. The Political and Economic Risk Consultancy ranked Singapore as the most efficient bureaucracy in Asia while Malaysia was ranked 7th.
Ease of Business Incorporation Procedures
The steps to incorporating a company in both Malaysia and Singapore take less than 5 days to complete. The steps of incorporation are:
Annual Compliance Filing
Both Malaysia and Singapore have almost similar annual compliance filing where:
Annual General Meeting (AGM) for annual return must be held within 18 months of incorporation and every 12 months for subsequent years.
As per the Company Act 2016, a Malaysian registered private limited Company is not compulsory to hold Annual General Meeting (AGM) as the annual return can be filed each year during its incorporation anniversary date.
Ease of Foreign Investments
Regulations on the participation of foreigners in business are easy compared to other Asian countries.
In Malaysia, a foreigner intending to hold more than 30% shareholding in a company must get approval from the foreign investment committee.
In Singapore, a foreigner can hold 100% ownership in a company without seeking any approval.
Both Malaysia and Singapore do not have visa requirements for foreigners incorporating companies without the intention of relocating. The foreign shareholders can attend to company matters while on short stay visas.
A foreign investor planning to relocate to Malaysia must obtain an employment pass. The foreigner must show that the company has RM 500,000 in paid up capital if it is 100% foreign owned, and RM 350,000 if the company is a joint venture with local Malaysian partners.
Foreign investors wishing to relocate to Singapore must show that they have 30% or more shareholding in the company and that the company has a minimum paid up capital of SGD 50,000.
All foreign expats who wish to work in both Singapore and Malaysia are required to have valid work passes before they can start working. In both jurisdictions, employment pass can be issued to foreign professionals who earned more than MYR 10,000 in Malaysia (depends on the EP category chosen) and SGD$ 5,000 in Singapore (depending on SAT test).
In a nutshell, both countries offer great benefits in a lot of aspects depending on what the Company end goal is. They welcome foreign investors with an open arm and the regulation imposed are not as strict compared to other Asian countries.
Yes, both countries have the same timezone, UTC+8. This makes it easy to do business in both countries.
Both countries have signed a double tax agreement. However, it should be noted that the agreement can be terminated at any point of time should either party deemed necessary to do so.
Yes, the Singapore government is pro-business. They have initiated many incentives and grants to encourage foreign direct investments in the country